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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
Commission file number 1-6458
JOHN DEERE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2386361
(State of incorporation) (IRS employer identification number)
SUITE 600, FIRST INTERSTATE BANK BUILDING
1 EAST FIRST STREET, RENO, NEVADA 89501 (702) 786-5527
(Address of principal executive offices) (Zip Code) (Telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
4-5/8% Notes Due 1996 New York Stock Exchange
7.20% Notes Due 1997 New York Stock Exchange
9-5/8% Subordinated Notes Due 1998 New York Stock Exchange
8-5/8% Subordinated Debentures Due 2019 New York Stock Exchange
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
At January 1, 1996, 2,500 shares of common stock, without par value, of the
registrant were outstanding, all of which were owned by John Deere Credit
Company.
The registrant meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K and is therefore filing this Form with certain reduced
disclosures as permitted by Instruction J(2).
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Page 1 of 53 pages.
Index to Exhibits is on pages 47 and 48.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
John Deere Capital Corporation (Capital Corporation) and its subsidiaries:
Deere Credit, Inc., Farm Plan Corporation, Deere Credit Services, Inc. and John
Deere Receivables, Inc., are collectively called the Company. John Deere Credit
Company, a wholly-owned finance holding subsidiary of Deere & Company, is the
parent of the Capital Corporation.
The principal business of the Company is providing and administering
financing for retail purchases of new and used John Deere agricultural,
industrial and lawn and grounds care equipment. The Company purchases retail
installment sales and loan contracts (retail notes) from Deere & Company and its
wholly-owned subsidiaries (collectively called John Deere). These retail notes
are acquired by John Deere through John Deere retail dealers in the United
States. The Company also purchases and finances retail notes unrelated to John
Deere, representing primarily recreational vehicle and recreational marine
product notes acquired from independent dealers of those products and from
marine product mortgage service companies (recreational product retail notes).
The Company also leases equipment to retail customers, finances and services
unsecured revolving charge accounts acquired from and offered through merchants
in the agricultural, lawn and grounds care and marine retail markets (revolving
charge accounts), and provides wholesale financing for wholesale inventories of
recreational vehicles, manufactured housing units, yachts, John Deere engines,
and John Deere industrial equipment owned by dealers of those products
(wholesale notes). Retail notes, revolving charge accounts, financing leases and
wholesale notes receivable are collectively called "Receivables." Receivables
and operating leases are collectively called "Receivables and Leases."
The Capital Corporation was incorporated under the laws of Delaware and
commenced operations in 1958. At January 1, 1996, the Company had 865 full- and
part-time employees.
BUSINESS OF JOHN DEERE
John Deere's operations are categorized into six business segments:
John Deere's worldwide AGRICULTURAL EQUIPMENT segment manufactures and
distributes a full range of equipment used in commercial farming --
including tractors; tillage, soil preparation, planting and harvesting
machinery; sprayers; crop handling equipment and precision farming devices.
John Deere's worldwide INDUSTRIAL EQUIPMENT segment manufactures and
distributes a broad range of machines used in construction, earthmoving and
forestry -- including backhoe loaders; crawler dozers and loaders; four-
wheel-drive loaders; scrapers; motor graders; excavators; and log skidders.
This segment also
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includes the manufacture and distribution of engines and drivetrain
components for the original equipment manufacturer (OEM) market.
John Deere's worldwide LAWN AND GROUNDS CARE EQUIPMENT segment manufactures
and distributes equipment for commercial and residential uses - including
small tractors for lawn, garden and utility purposes; riding and walk
behind mowers; golf course equipment; utility transport vehicles;
snowblowers; hand-held products such as chain saws, string trimmers and
leaf blowers; and other outdoor power products.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and other retail outlets. John
Deere's agricultural, industrial, and lawn and grounds care operations and
subsidiaries are sometimes referred to as the "Equipment Operations."
The CREDIT segment includes the operations of the Company (described
herein), John Deere Credit Company and John Deere Finance Limited, which
primarily purchases and finances retail notes from John Deere's equipment
sales branches in Canada, as well as recreational vehicle and marine
product notes from independent dealers. John Deere Finance Limited, through
its subsidiary, Canadian Equipment Finance Corporation (CEFC), also
purchases and finances non-Deere construction and transportation equipment
notes from independent dealers.
The INSURANCE segment issues policies in the United States and Canada
primarily for: general and specialized lines of property and casualty
insurance to the general public; group accident and health insurance for
employees of participating John Deere dealers and disability insurance for
employees of John Deere.
The HEALTH CARE segment provides health management programs and
related administrative services in the United States to corporate customers
as well as employees of John Deere.
John Deere's total annual net sales and revenues exceeded $10 billion for
the first time in John Deere's history, due to continued growth in demand for
John Deere products and services in fiscal 1995. Worldwide net sales and
revenues increased 15 percent to $10.3 billion in 1995 compared with $9.0
billion in 1994. Net sales of John Deere's Equipment Operations increased 15
percent in 1995 to $8.8 billion from $7.7 billion last year. The physical volume
of sales increased by 11 percent compared with a year ago.
John Deere achieved record worldwide net income for 1995, totaling $706
million compared with last year's income of $604 million. John Deere's strong
results for 1995 were due to higher production and sales levels, coupled with
significantly improved overseas and industrial equipment division results.
Additionally, John Deere's exports from the United States set a new record,
totaling $1.3 billion. John Deere's results also continued to benefit from the
strong performance of its Financial Services subsidiaries.
Market demand for John Deere products remains very strong. Increased
overseas and domestic demand for agricultural commodities, coupled with lower
than anticipated
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harvest yields, have resulted in substantial increases in commodity prices.
Additionally, the United States Department of Agriculture (USDA) is currently
forecasting world grain stocks to be at the lowest levels, relative to use,
since it began keeping systematic records. The low commodity inventories,
expected increases in worldwide grain demand and the anticipated resulting
strong worldwide commodity price levels should bolster farmers' confidence and
result in continued strong demand for new and used agricultural equipment.
Additionally, government acreage set-asides should be lower in 1996 in response
to the reduction in world grain stocks which should further promote agricultural
demand. Therefore, John Deere expects agricultural equipment industry retail
sales to increase again in 1996, despite some uncertainty surrounding the new
farm bill.
Nonresidential and public construction expenditures in 1996 are anticipated
to show moderate growth. Housing starts are projected to increase slightly over
1995 levels in response to lower mortgage rates now forecasted for 1996.
Consumer spending is expected to remain at relatively strong levels throughout
most of 1996. Additionally, John Deere's lawn and grounds care equipment demand
should also increase as the result of the introduction of a new product line,
"Sabre by John Deere", which includes entry-level lawn tractors and walk-behind
mowers. As a result of the many factors cited, industry retail sales for
industrial and lawn and grounds care products are expected to increase in 1996
compared with 1995. Financial Services revenues should reflect continued strong
demand for John Deere products.
Based on its initial production schedules, John Deere's worldwide physical
volume of sales to dealers in 1996 is expected to increase by four percent
compared with 1995, with first quarter volumes anticipated to be approximately
12 percent higher than the first quarter of 1995. Additionally, expenditures
targeted at establishing markets for new and existing products in both domestic
and overseas regions are expected to increase substantially in 1996. However,
the expected volume increases will more than offset the short-term costs
associated with John Deere's planned growth initiatives. Therefore, 1996 is
expected to be another strong year.
RELATIONSHIPS OF THE COMPANY WITH JOHN DEERE
The operations and results of the Company are affected by its relationships
with John Deere, including among other things, the terms on which the Company
acquires Receivables and Leases and borrows funds from John Deere, the
reimbursement for waiver and low-rate finance programs from John Deere and the
payment to John Deere for various expenses applicable to the Company's
operations. In addition, John Deere has joint access to all of the Company's
bank lines of credit.
The Company's acquisition of Receivables and Leases is largely dependent
upon the level of retail sales and leases of John Deere products. The level of
John Deere retail sales and leases is responsive to a variety of economic,
financial, climatic and other factors which influence demand for its products.
Since 1986, the Company has also been providing retail sales financing through
dealers of certain unrelated manufacturers of recreational vehicles and
recreational marine products. The net balance of recreational product retail
notes outstanding under these arrangements at October 31,1995 totaled $865
million.
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The Company bears all of the credit risk (net of recovery from withholdings
from certain John Deere dealers and Farm Plan merchants) associated with its
holding of Receivables and Leases, and performs all servicing and collection
functions. The Company compensates John Deere for originating retail notes and
leases on John Deere products or through John Deere dealers. John Deere is also
reimbursed for staff and other administrative services at estimated cost, and
for credit lines provided to the Company based on utilization of those lines.
The terms of retail notes and the basis on which the Company acquires
retail notes from John Deere are governed by agreements with John Deere,
terminable by either John Deere or the Company on 30 days notice. As provided in
these agreements, the Company sets its terms and conditions for purchasing the
retail notes from John Deere. Under these agreements, John Deere is not
obligated to sell retail notes to the Company, and the Company is obligated to
purchase retail notes from John Deere only if the notes comply with the terms
and conditions set by the Company.
The terms of retail notes and the basis on which John Deere acquires retail
notes from the dealers are governed by agreements with the independent John
Deere dealers, terminable at will by either the dealers or John Deere. In
acquiring the retail notes from dealers, the terms and conditions, as set forth
in agreements with the dealers, conform with the terms and conditions adopted by
the Company in determining the acceptability of retail notes to be purchased
from John Deere. The dealers are not obligated to send retail notes to John
Deere, and John Deere is not obligated to accept retail notes from the dealers.
In practice, retail notes are acquired from dealers only if the terms of the
retail notes and the creditworthiness of the customers are acceptable to the
Company for purchase of the retail notes from John Deere. The Company acts on
behalf of both itself and John Deere in determining the acceptability of the
notes and acquiring acceptable notes from dealers.
The terms of leases, and the basis on which the Company enters into such
leases with retail customers through John Deere dealers, are governed by
agreements between dealers and the Company. Leases are accepted based on the
lessees' creditworthiness, the anticipated residual values of the equipment and
the intended uses of the equipment.
Deere & Company has expressed an intention of conducting its business with
the Company on such terms that the Company's consolidated ratio of earnings to
fixed charges will not be less than 1.05 to 1 for any fiscal quarter. For 1995,
the Company's ratio was 1.73 to 1 and for 1994, it was 1.96 to 1. This
arrangement is not intended to make Deere & Company responsible for the payment
of obligations of the Company.
DESCRIPTION OF RECEIVABLES AND LEASES
Receivables and Leases arise mainly from the retail sale or lease
(including the sale to John Deere dealers for rental to users) of John Deere
products, used equipment accepted in trade for them, and equipment of unrelated
manufacturers, and also include revolving charge accounts receivable and
wholesale notes receivable. The great majority derive from retail sales and
leases of agricultural equipment, industrial equipment and lawn and grounds care
equipment sold by John Deere dealers. The Company also offers financing to
recreational product customers through the secured financing of recreational
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vehicles and recreational marine products. The Company also offers Farm Plan
revolving charge accounts, which are used primarily by agri-businesses to
finance purchases which would otherwise be carried by the merchant as accounts
receivable, as well as credit cards, which are used primarily by retail
customers to finance purchases of John Deere lawn and grounds care equipment and
marine equipment. Retail notes provide for retention by John Deere or the
Company of security interests under certain statutes, including the Uniform
Commercial Code, certain Federal statutes, and state motor vehicle laws. Filings
are also made for leases, but for operating leases these filings are for
informational purposes only. See notes 1 and 2 to the consolidated financial
statements.
Recreational product retail notes conform to industry standards different
from those for John Deere retail notes and often have smaller down payments and
longer repayment terms. In addition, the volumes, margins and collectibility of
recreational product retail notes are affected by different economic, marketing
and competitive factors and cycles, such as fluctuations in fuel prices and
recreational spending patterns, from those affecting retail notes arising from
the sale of John Deere equipment. Recreational product retail notes are acquired
from more than 550 active recreational vehicle dealers and from approximately
500 active marine product dealers.
Receivables and Leases are eligible for acceptance if they conform to
prescribed finance and lease plan terms. Guidelines relating to down-payments
and contract terms on retail notes and leases are described in note 2 to the
consolidated financial statements.
The John Deere Credit Revolving Plan is used primarily by retail customers
of John Deere dealers to finance purchases of John Deere lawn and grounds care
equipment. John Deere Credit Revolving Plan is also used by some of the
Company's recreational product customers to finance the purchase of such
products. Additionally, through its Farm Plan product, the Company finances
revolving charge accounts offered by approximately 3,100 participating agri-
businesses to their retail customers for the purchase of goods and services.
Farm Plan account holders consist mainly of farmers purchasing equipment parts
and service at implement dealerships. Farm Plan revolving charge accounts are
also used by customers patronizing other agri-businesses, including farm supply,
feed and seed, parts supply, bulk fuel, building supply merchants and
veterinarians. See notes 1 and 2 to the consolidated financial statements under
"Revolving Charge Accounts Receivable."
The Company finances wholesale inventories owned by approximately 400
dealers of recreational vehicles, manufactured housing units, yachts, John Deere
engines, and John Deere industrial equipment. A portion of the wholesale
financing provided by the Company is with dealers from whom it also purchases
recreational product and yacht retail notes. See notes 1 and 2 to the
consolidated financial statements under "Wholesale Receivables."
The Company requires that theft and physical damage insurance be carried on
all goods leased or securing retail notes. In most cases, the customer may, at
his expense, have the Company or the seller of the goods purchase this insurance
or obtain it from other sources. Theft and physical damage insurance is also
required on wholesale notes. Insurance is not required for revolving charge
accounts.
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In some circumstances, Receivables and Leases may be accepted and acquired
even though they do not conform in all respects to the established guidelines.
Acceptability and servicing of retail notes, wholesale notes and leases,
according to the finance plans and retail terms, including any waiver of
conformity with such plans and terms, is determined by Company personnel.
Officers of the Company are responsible for reviewing the performance of the
Company in accepting and collecting retail notes, wholesale notes and leases.
The Company normally makes all routine collections, compromises, settlements and
repossessions on Receivables and Leases.
FINANCE RATES ON RETAIL NOTES
As of October 31, 1995, approximately 52 percent of net dollar value of the
retail notes held by the Company bore a variable finance rate. Recreational
product retail notes are primarily fixed finance rate notes.
A portion of the finance income earned by the Company arises from financing
the retail sales of John Deere equipment sold in advance of the season of use or
in other sales promotions by John Deere on which finance charges are waived by
John Deere for a period from the date of sale to a specified subsequent date.
Some low-rate financing programs are also offered by John Deere. The Company
generally receives compensation from John Deere equal to a competitive interest
rate for periods during which finance charges have been waived or reduced. The
portion of the Company's finance income earned that was received from John Deere
on retail notes containing waiver of finance charges or reduced rates was 19
percent in 1995 and 14 percent in 1994.
RECEIVABLES AND LEASES ACQUIRED AND HELD
Receivable and Lease acquisitions during the fiscal years ended and amounts
held at October 31, 1995 and 1994 were as follows in millions of dollars:
<TABLE>
<CAPTION>
FISCAL YEAR BALANCE AT
ACQUISITIONS OCTOBER 31
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Retail Notes: (1)
Agricultural Equipment $2,083.5 $1,741.5 $2,286.2 $1,917.8
Industrial Equipment 391.2 394.7 511.0 414.4
Lawn and Grounds Care Equipment 100.1 89.4 162.3 157.0
Recreational Products 288.7 262.3 865.4 800.0
Total 2,863.5 2,487.9 3,824.9 3,289.2
Revolving Charge Accounts (1) 1,050.1 945.3 510.2 437.3
Financing and Operating Leases (2) 146.8 144.9 288.8 242.9
Wholesale Notes(1) 607.0 363.8 298.1 142.2
Total Receivables and Leases $4,667.4 $3,941.9 $4,922.0 $4,111.6
</TABLE>
(1) "Amount" as used here means the approximate principal value financed.
(2) "Amount" as used here represents the cost of equipment financed on
both financing and operating leases.
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John Deere equipment note acquisitions increased by approximately $349
million in 1995 compared with the same period last year, primarily due to an
increase in the acquisition of agricultural equipment retail notes. Acquisitions
of recreational product retail notes were ten percent higher in the current year
due to more competitive financing programs offered by the Company in both the
recreational vehicle and recreational marine product markets.
The Company's business is somewhat seasonal, with overall acquisitions of
Receivables and Leases traditionally higher in the second half of the fiscal
year than in the first half, and overall collections of credit receivables
traditionally somewhat higher in the first six months than in the last half of
the fiscal year.
From time to time, the Capital Corporation sells retail notes to other
financial institutions and in the public market. The Capital Corporation
received proceeds from sales of John Deere retail notes of $726 million in 1995
and $560 million in 1994. The unpaid balance of all retail notes previously sold
was $1.162 billion at October 31, 1995 and $1.175 billion at October 31, 1994.
For additional information on the terms, conditions, recourse and accounting for
such sales, see note 2 to the consolidated financial statements.
AVERAGE ORIGINAL TERM AND AVERAGE LIFE OF RETAIL NOTES AND LEASES
The following table shows the estimated average original term in months
(based on dollar amounts) for retail notes and leases acquired by the Company
during 1995 and 1994:
<TABLE>
<CAPTION>
AVERAGE ORIGINAL TERM
(IN MONTHS)
---------------------
1995 1994
--------- --------
<S> <C> <C>
Retail Notes 71 70
New Equipment:
Agricultural Equipment 56 57
Industrial Equipment 44 44
Lawn and Grounds Care Equipment 45 45
Recreational Products 146 161
Used Equipment:
Agricultural Equipment 54 54
Industrial Equipment 38 37
Lawn and Grounds Care Equipment 46 47
Recreational Products 164 202
Leases 48 44
</TABLE>
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The average original term for recreational products is longer than John
Deere equipment notes because of competitive pressures. Because of prepayments
(often from trade-ins), the average actual life of retail notes is considerably
shorter than the average original term. The following table shows the estimated
average life in months (based on dollar amounts) for retail notes and leases
liquidated in 1995 and 1994:
<TABLE>
<CAPTION>
AVERAGE LIFE
(IN MONTHS)
---------------------
1995 1994
--------- --------
<S> <C> <C>
Retail Notes (1) 29 30
Agricultural Equipment 26 26
Industrial Equipment 25 27
Lawn and Grounds Care Equipment 33 33
Recreational Products (2) 49 46
Leases 40 41
</TABLE>
(1) Includes new and used equipment.
(2) Estimate based on industry averages due to limited experience with the
recreational product portfolio.
DEPOSITS WITHHELD ON RECEIVABLES AND LEASES
Generally, the Company has limited recourse against John Deere agricultural
and lawn and grounds care dealers on retail notes and leases and against certain
Farm Plan merchants on revolving charge account balances acquired from or
through those dealers and merchants. For these John Deere dealers and Farm Plan
merchants, separate withholding accounts are maintained by the Company. The
total amount of deposits withheld from John Deere dealers and Farm Plan
merchants totaled $126.6 million and $111.4 million at October 31, 1995 and
1994, respectively. Of this amount, deposits withheld from Farm Plan merchants
totaled $1.0 million at October 31, 1995 and $.5 million at October 31, 1994.
Credit losses are charged against deposits withheld from the originating dealer
or merchant. To the extent that a loss cannot be absorbed by the deposit
withheld from the dealer or merchant from which the retail note, lease or Farm
Plan account was acquired, it is charged against the Company's allowance for
credit losses. See note 1 to the consolidated financial statements.
The Company does not withhold deposits on recreational product retail
notes, John Deere Credit Revolving Plan receivables, industrial notes or
wholesale notes acquired. However, an allowance for credit losses has been
established by the Company in an amount considered to be appropriate in relation
to the total Receivables and Leases outstanding. In addition, for wholesale
notes relating to recreational vehicles, manufactured housing units and yachts,
there are agreements with the manufacturers for the repurchase of new
inventories held by dealers. For additional information on credit losses and
deposits withheld on Receivables and Leases, see note 3 to the consolidated
financial statements.
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DELINQUENCIES AND LOSSES
RETAIL NOTES. The following table shows unpaid installments 60 days or
more past due on retail notes held by the Company and the balance (principal
plus earned interest) of retail notes outstanding with any such delinquencies,
on the basis of retail note terms in effect at the indicated dates, in millions
of dollars and as a percentage of the ending retail note portfolio financed by
the Company at such dates:
<TABLE>
<CAPTION>
INSTALLMENTS PAST DUE BALANCES ON WHICH ANY INSTALLMENT IS
60 DAYS OR MORE PAST DUE 60 DAYS OR MORE
-------------------------- ------------------------------------
PERCENT OF ENDING PERCENT OF ENDING
RETAIL NOTE RETAIL NOTE PORTFOLIO
OCTOBER 31 AMOUNT PORTFOLIO FINANCED AMOUNT FINANCED
- ---------- ------ ------------------ ------------ --------------------
<S> <C> <C> <C> <C>
1995 $ 6.1 0.16% $ 33.0 0.86%
1994 $ 5.5 0.17% $ 23.9 0.73%
1993 $ 6.8 0.24% $ 33.0 1.18%
</TABLE>
The following table shows losses on retail notes in millions of dollars
(after charges to withheld dealer deposits) and as a percentage of the average
retail note portfolio financed:
<TABLE>
<CAPTION>
PERCENT OF AVERAGE RETAIL NOTE
YEAR ENDED OCTOBER 31 AMOUNT PORTFOLIO FINANCED
--------------------- ------ ------------------------------
<S> <C> <C>
1995 $ 14.6 0.43%
1994 $ 15.0 0.47%
1993 $ 19.3 0.59%
</TABLE>
Retail note write-offs declined three percent in 1995 compared to 1994.
Write-offs on equipment retail notes financed totaled $3.1 million, an increase
of 49 percent, compared with write-offs of $2.1 million in 1994, primarily due
to higher industrial equipment write-offs. Write-offs of recreational product
retail notes totaled $11.5 million in 1995 compared with $12.9 million in 1994,
an 11 percent decrease.
REVOLVING CHARGE ACCOUNTS. The following table shows revolving charge
account payments 60 days or more past due in millions of dollars and as a
percentage of total revolving charge accounts receivable:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVOLVING
OCTOBER 31 AMOUNT CHARGE ACCOUNTS RECEIVABLE
---------- ------ --------------------------
<S> <C> <C>
1995 $ 7.1 1.40%
1994 $ 5.6 1.28%
1993 $ 5.3 1.62%
</TABLE>
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The following table shows losses on revolving charge accounts in millions
of dollars and as a percentage of the average revolving charge amounts financed:
<TABLE>
<CAPTION>
PERCENT OF AVERAGE REVOLVING
YEAR ENDED OCTOBER 31 AMOUNT CHARGE AMOUNTS FINANCED
--------------------- ------ ----------------------------
<S> <C> <C>
1995 $ 7.6 1.75%
1994 $ 4.8 1.38%
1993 $ 3.3 1.22%
</TABLE>
Losses increased in 1995 for both Farm Plan and the John Deere Credit
Revolving Plan. The higher losses in 1995 related to both the growth in the
revolving charge portfolio and exceptionally low write-offs in 1994 and 1993.
LEASES. The following table shows the total balance of financing and
operating lease payments 60 days or more past due in millions of dollars and as
a percent of the investment in financing and operating leases at those
respective dates.
<TABLE>
<CAPTION>
PERCENT OF THE INVESTMENT IN
OCTOBER 31 AMOUNT FINANCING AND OPERATING LEASES
---------- ------ ------------------------------
<S> <C> <C>
1995 $ .8 0.28%
1994 $ .6 0.24%
1993 $ .5 0.25%
</TABLE>
The following table shows losses absorbed by the Company, in millions of
dollars and as a percent of the average investment in financing and operating
leases, on terminated financing and operating leases (after charges to withheld
dealer deposits).
<TABLE>
<CAPTION>
PERCENT OF AVERAGE INVESTMENT
YEAR ENDED OCTOBER 31 AMOUNT IN FINANCING AND OPERATING LEASES
--------------------- ------ ---------------------------------
<S> <C> <C>
1995 $ 1.1 0.40%
1994 $ .5 0.25%
1993 $ 1.2 0.65%
</TABLE>
The increase in 1995 losses resulted primarily from increased industrial
lease write-offs.
WHOLESALE NOTES. The total balance of wholesale notes receivable 60 days
or more past due totaled $.1 million at October 31, 1995 and October 31, 1993,
which represented 0.02 percent and 0.11 percent, respectively, of the wholesale
notes receivable held on those dates. The total balance of wholesale notes
receivable 60 days or more past due was negligible at October 31, 1994.
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The following table shows wholesale note losses in millions of dollars and
as a percentage of the average wholesale notes receivable:
<TABLE>
<CAPTION>
PERCENT OF AVERAGE WHOLESALE
YEAR ENDED OCTOBER 31 AMOUNT NOTES RECEIVABLE
--------------------- ------ ----------------------------
<S> <C> <C>
1995 $ .4 0.19%
1994 $ .5 0.41%
1993 $ 2.3 1.92%
</TABLE>
The average wholesale note portfolio increased 86 percent in 1995,
primarily as a result of increases in wholesale financing of John Deere
industrial dealers and dealers of manufactured housing and yachts. The losses in
1993 resulted primarily from a relatively large loss incurred with one
recreational vehicle dealer.
COMPETITION
The businesses in which the Company is engaged are highly competitive. The
Company competes for customers based upon its customer service and finance rates
(or time-price differentials) charged. The proportion of John Deere equipment
retail sales and leases financed by the Company is influenced by conditions
prevailing in the agricultural equipment, industrial equipment and lawn and
grounds care equipment industries, in the financial markets, and in business
generally. A significant portion of such retail sales during 1995 was financed
by the Company. A substantial part of the retail sales and leases eligible for
financing by the Company is financed by others, including banks and other
finance and leasing companies.
The Company emphasizes convenient service to retail customers and offers
terms desired in its specialized markets such as seasonal schedules of repayment
and rentals. The Company's installment sales and loan finance rates or time-
price differentials and lease rental rates are believed to be in the range of
those of sales finance and leasing companies generally, although not as low as
those of some banks and other lenders and lessors.
REGULATION
In a number of states, the maximum finance rate or time-price differential
on retail notes is limited by state law. The present state limitations have not,
thus far, significantly limited the Company's variable-rate finance charges nor
the fixed-rate finance charges established by the Company. However, if interest
rate levels should increase significantly, maximum state rates or time-price
differentials could affect the Company by preventing the variable rates on
outstanding variable-rate retail notes from increasing above the maximum state
rate or time-price differential, and by limiting the fixed rates or time-price
differentials on new notes. In some states, the Company may be able to qualify
new retail notes for a higher maximum limit by using retail installment sales
contracts (rather than loan contracts) or by using fixed-rate rather than
variable-rate contracts.
In addition to rate regulation, various state and federal laws and
regulations apply to some Receivables and Leases, principally retail notes for
goods sold for personal,
11
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family or household use and Farm Plan and John Deere Credit Revolving Plan
accounts receivable for such goods. To date, such laws and regulations have not
had a significant adverse effect on the Company.
ITEM 2. PROPERTIES.
The Company's properties principally consist of office equipment and leased
office space in Reno, Nevada; West Des Moines, Iowa; Moline, Illinois; Madison,
Wisconsin; and Ft. Lauderdale, Florida.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to various unresolved legal actions which arise in
the normal course of its business, the most prevalent of which relate to state
and federal regulations concerning retail credit. Although it is not possible to
predict with certainty the outcome of these unresolved legal actions or the
range of possible loss, the Company believes that these unresolved legal actions
will not have a material effect on its financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to instruction J(2).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of the Capital Corporation's common stock is owned by John Deere Credit
Company, a finance holding company that is wholly-owned by Deere & Company.
The Capital Corporation paid cash dividends to John Deere Credit Company of
$55 million in 1995 and $210 million in 1994. In each case, John Deere Credit
Company paid a comparable dividend to Deere & Company. During the first quarter
of 1996, the Capital Corporation declared and paid a dividend of $20 million to
John Deere Credit Company which, in turn, declared and paid a dividend of $20
million to Deere & Company.
ITEM 6. SELECTED FINANCIAL DATA.
Omitted pursuant to instruction J(2).
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
Acquisitions of Receivables and Leases by the Company during 1995, totaled
$4.667 billion, an increase of 18 percent, compared with acquisitions of $3.942
billion during 1994. The higher acquisitions this year resulted mainly from an
increased volume of John Deere agricultural and John Deere lawn and grounds care
equipment retail notes, recreational vehicle retail notes, revolving charge
accounts and wholesale receivables. Receivables and Leases held by the Company
at October 31, 1995 totaled $4.922 billion compared with $4.112 billion one year
ago. Receivables and Leases administered, which include retail notes and leases
previously sold but still administered, amounted to $6.105 billion at the end of
1995 compared with $5.326 billion at October 31, 1994.
During 1995, retail notes (principal value financed) acquired by the
Company increased 15 percent compared with 1994. Retail note acquisitions
totaled $2.864 billion during 1995 compared with 1994 acquisitions of $2.488
billion. The increase was primarily due to increased retail sales of John Deere
equipment and an improvement in the Company's market share for the financing of
John Deere agricultural equipment. Acquisitions of recreational product retail
notes accounted for ten percent of total retail note acquisitions in 1995 and 11
percent in 1994.
Retail note acquisitions from John Deere increased by $349 million in 1995,
a 16 percent increase over last year. Acquisitions of agricultural equipment
retail notes increased 20 percent over last year. Lawn and grounds care
equipment retail note activity increased 12 percent over the prior year.
Acquisitions of industrial equipment notes decreased by $4 million, or one
percent, compared to 1994. However, 1995 results do not include industrial
dealer wholesale notes, which are now classified as part of the wholesale
receivables. Retail note acquisitions in 1995 from John Deere continued to
represent a significant proportion of the total United States retail sales of
John Deere equipment.
Acquisitions of recreational product retail notes, representing primarily
recreational vehicle and recreational marine product notes acquired from
independent dealers of several unrelated manufacturers, were $289 million in
1995 compared with $262 million in 1994. This increase resulted primarily from
more competitive financing programs in both the recreational vehicle and
recreational marine product markets.
At October 31, 1995, the amount of retail notes held by the Company was
$3.825 billion compared to $3.289 billion last year. Included in these amounts
were recreational product retail notes of $865 million in 1995 and $800 million
in 1994. The balance of equipment retail notes held increased from $2.489
billion at October 31, 1994 to $2.960 billion at the end of 1995. This increase
resulted from equipment retail note acquisitions exceeding collections during
1995. However, the Company also securitized and sold retail notes, receiving
proceeds of $726 million during 1995 compared to $560 million during 1994.
Additional information is presented in note 1 to the consolidated financial
13
<PAGE>
statements. The balance of retail notes administered by the Company, which
includes retail notes previously sold, amounted to $4.987 billion at October 31,
1995, compared with $4.464 billion at October 31, 1994. The balance of retail
notes previously sold was $1.162 billion at October 31, 1995 compared with
$1.175 billion at October 31, 1994. Additional sales of retail notes are
expected to be made in the future. The Company's maximum exposure under all
retail note recourse provisions at October 31, 1995 and 1994 was $180 and $140
million, respectively.
Retail notes bearing variable finance rates totaled 52 percent of net
dollar value of the retail note portfolio at October 31, 1995 compared with 56
percent one year earlier. The Company actively manages interest rate risk
through the issuance of fixed-rate and variable-rate borrowings and the use of
financial instruments such as interest rate swaps and interest rate caps. See
"Capital Resources and Liquidity" and note 13 "Financial Instruments" to the
consolidated financial statements.
Revolving charge accounts receivable totaled $510 million at October 31,
1995, an increase of 17 percent compared with $437 million at October 31, 1994.
The balance at October 31, 1995 included $232 million of John Deere Credit
Revolving Plan receivables and $278 million of Farm Plan receivables compared
with $210 million and $227 million, respectively, at October 31, 1994. Revolving
charge account acquisitions increased 11 percent in 1995 compared with 1994,
reflecting the increased volume of Farm Plan receivable acquisitions.
The portfolio of financing leases totaled $149 million at October 31, 1995
and $118 million at October 31, 1994. The investment in operating leases was
$140 million and $125 million at the end of 1995 and 1994, respectively. The
Company also administers municipal leases owned by Deere & Company, which
totaled $21 million at October 31, 1995 compared with $39 million at
October 31, 1994. The Company sold $20 million of municipal leases to Deere &
Company in 1994. During 1995, the Company did not sell municipal leases to Deere
& Company.
Wholesale notes receivable on recreational vehicle, manufactured housing,
yachts, John Deere engine inventories and John Deere industrial dealer wholesale
notes totaled $298 million at October 31, 1995 compared with $142 million at
October 31, 1994. Wholesale note acquisitions, including the industrial dealer
wholesale note acquisitions, increased 67 percent during the year and were
favorably impacted by the Company's growth in both the manufactured housing and
yacht markets.
Total Receivable and Lease amounts 60 days or more past due were $14.1
million at October 31, 1995 compared with $11.7 million at October 31, 1994.
These past-due amounts represented 0.29 percent and 0.28 percent of the total
Receivables and Leases held at those respective dates. The balance (principal
plus earned interest) of retail notes outstanding with any installments 60 days
or more past due was $33.0 million at October 31, 1995 compared with $23.9
million one year earlier. The amount of retail note installments 60 days or more
past due was $6.1 million at October 31, 1995 and $5.5 million at October 31,
1994. These past-due installments represented 0.16 percent of the unpaid balance
of retail notes at October 31, 1995 and 0.17 percent at October 31, 1994.
14
<PAGE>
The total balance of revolving charge accounts receivable 60 days or more
past due was $7.1 million at October 31, 1995 compared with $5.6 million at
October 31, 1994. These past-due amounts represented 1.40 percent and 1.28
percent of the revolving charge accounts receivable held at each of those
respective dates.
The total balance of financing and operating lease payments 60 days or more
past due was $.8 million at October 31, 1995 compared with $.6 million at
October 31, 1994. These past-due installments represented 0.28 percent and 0.24
percent of the investment in financing and operating leases at those respective
dates.
At October 31, 1995, the Company's allowance for credit losses on all
Receivables and Leases financed, totaled $84 million and represented 1.7 percent
of the total Receivables and Leases financed compared with $80 million and 1.9
percent, respectively, one year earlier. Deposits withheld from dealers and
merchants, representing mainly the aggregate retail note and lease withholding
accounts from individual John Deere dealers to which losses from retail notes
and leases originating from the respective dealers can be charged, amounted to
$127 million at October 31, 1995 compared to $111 million at October 31, 1994.
The Capital Corporation's consolidated net income for the fiscal year ended
October 31, 1995 was $114.1 million compared with net income of $104.9 million
in 1994. The higher income resulted from higher earnings on a larger portfolio,
partially offset by lower financing margins. The ratio of earnings to fixed
charges was 1.73 to 1 for 1995 compared with 1.96 to 1 in 1994.
Total revenues of $551 million in 1995 were up 19 percent from $463 million
in 1994. Revenues were affected by the higher average portfolio owned and the
higher overall yield on the portfolio held. Higher average borrowing rates on
increased borrowings this year resulted in higher interest expense, which
totaled $238 million in 1995 compared with $167 million in 1994. Average
borrowings were $3.726 billion in 1995 compared with $3.235 billion in 1994. The
weighted average annual interest rate incurred on all interest-bearing
borrowings during this year increased to 6.3 percent from 4.9 percent in 1994.
Finance income earned on retail notes was $333 million this year compared
with $293 million in 1994, an increase of 14 percent. The average balance of the
retail note portfolio financed during 1995 was seven percent higher than the
comparable 1994 average balance.
Revenues earned on revolving charge accounts amounted to $84 million in
1995, a 26 percent increase over revenues of $67 million earned during 1994.
This increase was primarily due to a 23 percent increase in the average balance
of Farm Plan receivables financed and a 28 percent increase in the average
balance of John Deere Credit Revolving Plan receivables financed in 1995
compared with 1994.
The average net investment in financing and operating leases increased by
20 percent in 1995 compared with 1994. Correspondingly, total lease revenues
increased to $48.0 million in 1995 compared with $43.6 million in 1994.
15
<PAGE>
The net gain on retail notes sold totaled $11.4 million during 1995
compared with $10.3 million for 1994. The Company received proceeds from the
sale of retail notes in the amount of $726 million during 1995 and $560 billion
in 1994. Securitization and servicing fee income totaled $35.5 million in 1995
compared with $28.6 million during 1994. Securitization and servicing fee income
relates to retail notes sold to limited-purpose business trusts and primarily
includes the amortization of present value receivable amounts from the trusts
established at the time of sale, adjustments related to those sales and
reimbursed administrative expenses received from the trusts. Additional sales of
retail notes are expected to be made in the future.
Administrative and operating expenses decreased three percent from $79.7
million in 1994 to $77.6 million in 1995. The decline was primarily related to
reduced legal expenses during the year compared to 1994.
The provision for credit losses was $32.3 million in 1995 and $27.8 million
in 1994. Total write-offs of Receivables and Leases financed were $23.7 million
during 1995 compared with $20.8 million in 1994. The increase in write-offs from
1994 primarily related to an increase in the amount of revolving charge and
industrial equipment receivable write-offs. The increase in the provision was
partially offset by a favorable adjustment of $6.7 million in 1995 related to
current and expected losses on both revolving charge and industrial equipment
retail notes.
1994 COMPARED WITH 1993
Acquisitions of Receivables and Leases by the Company increased 18 percent
during 1994 compared with acquisitions in 1993. The higher acquisitions in 1994
resulted mainly from an increased volume of John Deere agricultural and
industrial equipment retail notes, revolving charge accounts and wholesale
receivables. Receivables and Leases held by the Company at October 31, 1994
totaled $4.112 billion compared with $3.437 billion in 1993. Receivables and
Leases administered, which include retail notes previously sold but still
administered, amounted to $5.326 billion at the end of 1994 compared with $4.873
billion at October 31, 1993.
During 1994, retail notes (principal value financed) acquired by the
Company increased 16 percent compared with 1993. Retail note acquisitions
totaled $2.488 billion during 1994 compared with 1993 acquisitions of $2.136
billion. The increase was primarily due to increased retail sales of John Deere
equipment. Acquisitions of recreational product retail notes accounted for 11
percent of total retail note acquisitions in 1994 and nine percent in 1993.
Retail note acquisitions from John Deere increased by $291 million in 1994,
a 15 percent increase over 1993. Acquisitions of agricultural equipment retail
notes increased 14 percent over 1993. Industrial equipment retail note activity
was significantly higher, increasing 24 percent over 1993. Acquisitions of lawn
and grounds care equipment notes were flat compared to 1993; however,
corresponding financings under the John Deere Credit Revolving Plan, under which
lawn and grounds care equipment is also financed, increased significantly.
Retail note acquisitions in 1994 from John Deere continued to represent a
significant proportion of the total United States retail sales of John Deere
equipment.
16
<PAGE>
Acquisitions of recreational product retail notes, representing primarily
recreational vehicle and recreational marine product notes acquired from
independent dealers of several unrelated manufacturers, were $262 million in
1994 compared with $202 million in 1993. This increase resulted primarily from
more competitive financing programs in both the recreational vehicle and
recreational marine product markets.
At October 31, 1994, the amount of retail notes held by the Company was
$3.289 billion compared to $2.792 billion in 1993. Included in these amounts
were recreational product retail notes of $800 million in 1994 and $804 million
in 1993. The balance of John Deere retail notes held increased from $1.988
billion at October 31, 1993 to $2.489 billion at the end of 1994. This increase
resulted from John Deere retail note acquisitions exceeding collections during
1994. However, the Company also securitized and sold retail notes, receiving
proceeds of $560 million during 1994 compared to $1.143 billion during 1993.
Additional information is presented in note 1 to the consolidated financial
statements. The balance of retail notes administered by the Company, which
includes retail notes previously sold, amounted to $4.464 billion at October 31,
1994, compared with $4.185 billion at October 31, 1993. The balance of retail
notes previously sold was $1.175 billion at October 31, 1994 compared with
$1.394 billion at October 31, 1993. The Company's maximum exposure under all
retail note recourse provisions at October 31, 1994 and 1993 was $140 and $175
million, respectively.
Retail notes bearing variable finance rates totaled 56 percent of the total
retail note portfolio at October 31, 1994 compared with 57 percent in 1993. The
Company actively manages interest rate risk through the issuance of fixed-rate
and variable-rate borrowings and the use of financial instruments such as
interest rate swaps and interest rate caps.
At the end of fiscal 1994, revolving charge accounts receivable totaled
$437 million, an increase of 32 percent compared with $331 million at October
31, 1993. The balance at October 31, 1994 included $210 million of John Deere
Credit Revolving Plan receivables (including a small balance of marine finance
receivables) and $227 million of Farm Plan receivables compared with $147
million and $184 million, respectively, at October 31, 1993. Revolving charge
account acquisitions increased 24 percent in 1994 compared with 1993, reflecting
the increased retail sales of John Deere lawn and grounds care equipment, as
well as an increased volume of Farm Plan receivable acquisitions.
The portfolio of financing leases totaled $118 million at October 31, 1994
and $85 million at October 31, 1993. The investment in operating leases was $125
million and $119 million at the end of 1994 and 1993, respectively. Overall,
1994 lease acquisitions were flat compared to 1993. The Company also administers
municipal leases owned by Deere & Company, which totaled $39 million at October
31, 1994 compared with $43 million at October 31, 1993. During 1994, $20 million
of municipal leases were sold to Deere & Company compared with $19 million sold
in 1993.
Wholesale notes receivable totaled $142 million at October 31, 1994
compared with $110 million at October 31, 1993. Wholesale note acquisitions
increased 23 percent during the year primarily due to acquisitions related to
recreational vehicle inventories. Wholesale activity was also favorably impacted
by the financing of $24 million in inventory held by dealers of manufactured
housing units, a new business for the Company in 1994.
17
<PAGE>
Total Receivable and Lease amounts 60 days or more past due were $11.7
million at October 31, 1994 compared with $12.7 million at October 31, 1993.
These past-due amounts represent 0.28 percent and 0.37 percent of the total
Receivables and Leases held at those respective dates. The balance (principal
plus earned interest) of retail notes outstanding with any installments 60 days
or more past due was $23.9 million at October 31, 1994 compared with $33.0
million in 1993. The amount of retail note installments 60 days or more past due
was $5.5 million at October 31, 1994 and $6.8 million at October 31, 1993. These
past-due installments represented 0.17 percent of the unpaid balance of retail
notes at October 31, 1994 and 0.24 percent at October 31, 1993.
The total balance of revolving charge accounts receivable 60 days or more
past due was $5.6 million at October 31, 1994 compared with $5.3 million at
October 31, 1993. These past-due amounts represented 1.28 percent and 1.61
percent of the revolving charge accounts receivable held at each of those
respective dates.
The total balance of financing and operating lease payments 60 days or more
past due was $.6 million at October 31, 1994 compared with $.5 million at
October 31, 1993. These past-due installments represented 0.24 percent and 0.25
percent of the investment in financing and operating leases at those respective
dates.
At October 31, 1994, the Company's allowance for credit losses on all
Receivables and Leases financed totaled $80 million and represented 1.9 percent
of the total Receivables and Leases financed compared with $77 million and 2.3
percent, respectively, at October 31, 1993. Deposits withheld from dealers and
merchants, representing mainly the aggregate retail note and lease withholding
accounts from individual John Deere dealers to which losses from retail notes
and leases originating from the respective dealers can be charged, amounted to
$111 million at October 31, 1994 compared to $105 million at October 31, 1993.
Consolidated net income for the fiscal year ended October 31, 1994 was
$104.9 million compared with income before the cumulative effect of accounting
changes of $111.0 million in 1993 ($107.2 million after the accounting changes).
The decrease reflects the impact of increased borrowings resulting from higher
dividend payouts during 1994, lower gains from the sale of retail notes and
higher operating expenses, partially offset by securitization and servicing fee
income from retail notes previously sold but still administered. The ratio of
earnings to fixed charges was 1.96 to 1 for 1994 compared with 1.99 to 1
(excluding the effects of accounting changes) in 1993.
Total revenues of $463 million in 1994 were down slightly from $466 million
in 1993. Revenues were affected by lower gains from the sale of retail notes and
lower average interest rates resulting in lower finance charges earned in 1994.
These decreases in revenues were partially offset by the previously mentioned
increase in securitization and servicing income. Lower average borrowing rates
in 1994 resulted in a slight decrease in interest expense, which totaled $167
million in 1994 compared with $168 million in 1993. Average borrowings were
$3.235 billion in 1994 compared with $3.127 billion in 1993. The weighted
average annual interest rate incurred on all interest-bearing borrowings in 1994
declined to 4.9 percent from 5.1 percent in 1993.
18
<PAGE>
Finance income earned on retail notes was $293 million in 1994 compared
with $314 million in 1993, a decrease of seven percent. The average balance of
the retail note portfolio financed during 1994 was three percent lower than the
comparable 1993 average balance.
Revenues earned on revolving charge accounts amounted to $67 million in
1994, a 24 percent increase over revenues of $54 million earned during 1993.
This increase was primarily due to a 24 percent increase in the average balance
of Farm Plan receivables financed and a 32 percent increase in the average
balance of John Deere Credit Revolving Plan receivables financed in 1994
compared with 1993.
The average net investment in financing and operating leases increased by
19 percent in 1994 compared with 1993. Correspondingly, total lease revenues
increased to $43.6 million in 1994 compared with $39.6 million in 1993.
The net gain on retail notes sold totaled $10.3 million during 1994
compared with $15.6 million for 1993. The Company received proceeds from the
sale of retail notes in the amount of $560 million during 1994 and $1.143
billion in 1993. Securitization and servicing fee income totaled $28.6 million
in 1994 compared with $22.3 million during 1993. Securitization and servicing
fee income relates to retail notes sold to limited-purpose business trusts and
primarily includes the amortization of present value receivable amounts from the
trusts established at the time of sale, adjustments related to those sales and
reimbursed administrative expenses received from the trusts.
Administrative and operating expenses increased seven percent to $80
million in 1994 compared with $75 million in 1993. These expenses increased
primarily due to the costs of employee reductions.
The provision for credit losses was $28 million in both 1994 and 1993.
Total write-offs of Receivables and Leases financed were $20.8 million during
1994 compared with $26.1 million in 1993. The decline in write-offs from 1993
related to a decrease in the amount of recreational product write-offs. The
provision amount in 1994 exceeded the cost of write-offs due primarily to the
overall growth of Receivables and Leases financed.
CAPITAL RESOURCES AND LIQUIDITY
The Company relies on its ability to raise substantial amounts of funds to
finance its Receivable and Lease portfolios. The Company's primary sources of
funds for this purpose are a combination of borrowings and equity capital.
Additionally, the Company periodically sells substantial amounts of retail notes
in the public market. The Company's ability to obtain funds is affected by its
debt ratings, which are closely related to the outlook for and the financial
condition of Deere & Company, and the nature and availability of support
facilities, such as its lines of credit. For information regarding Deere &
Company and its business, see Exhibit 99.
The Company's ability to meet its debt obligations is supported in a number
of ways. All commercial paper issued is backed by bank credit lines. The assets
of the Company are self-liquidating in nature. A strong equity position is
available to absorb unusual losses on these assets. Liquidity is also provided
by the Company's ability to sell
19
<PAGE>
or "securitize" these assets. Asset-liability risk is actively managed to
minimize exposure to interest rate fluctuations.
The Company's business is somewhat seasonal, with overall acquisitions of
Receivables and Leases traditionally higher in the second half of the fiscal
year than in the first half, and overall collections of Receivables and Leases
traditionally somewhat higher in the first six months than in the last half of
the fiscal year.
Cash provided by operating activities was $161 million in 1995. Financing
activities provided $858 million in 1995, resulting from a $913 million increase
in total borrowings, which were partially offset by dividend payments totaling
$55 million. Cash provided from the Company's operating and financing activities
was used primarily to increase credit receivables and a $121 million increase in
cash and cash equivalents. Cash used for investing activities totaled $898
million in 1995, primarily due to acquisitions of Receivables and Leases
exceeding collections by $1.629 billion, which was partially offset by the $726
million of proceeds from the sale of receivables. Other cash flows from
investing activities decreased in 1995 mainly due to the collection activity on
receivables previously sold that were being held for payment to the trusts. See
"Statement of Consolidated Cash Flows" on page 29.
Over the past three years, operating activities have provided $479 million
in cash, the sale of receivables $2.468 billion and total borrowings $1.007
billion. These amounts were used mainly to fund Receivable and Lease
acquisitions which exceeded collections by $3.612 billion and payments of $347
million in dividends.
The Company is naturally exposed to various interest rate and foreign
currency risks. As a result, the Company enters into derivative transactions to
hedge these exposures that arise in the normal course of business, and not for
the purpose of creating speculative positions or trading. In common with other
large credit companies, the Company actively manages the relationship of the
types and amounts of its funding sources to its Receivable and Lease portfolios
in an effort to diminish risk due to interest rate fluctuations, while
responding to favorable financing opportunities. Accordingly, from time to time,
the Company enters into interest rate swap and interest rate cap agreements to
hedge its interest rate exposure in amounts corresponding to a portion of its
borrowings. The Company also has a foreign exchange swap related to a long term
borrowing. The credit and market risks under these interest rate and foreign
currency agreements are not considered to be significant. See note 13 to the
consolidated financial statements for further details.
Total interest-bearing indebtedness amounted to $4.264 billion at October
31, 1995 compared with $3.350 billion at October 31, 1994, generally
corresponding with the level of Receivables and Leases financed and the level of
cash and cash equivalents. Total short-term indebtedness amounted to $2.791
billion at October 31, 1995 compared with $2.316 billion at October 31, 1994.
Total long-term indebtedness amounted to $1.473 billion at October 31, 1995 and
$1.034 billion at October 31, 1994. The ratio of total interest-bearing debt to
stockholder's equity was 6.2 to 1 and 5.3 to 1 at October 31, 1995 and October
31, 1994, respectively.
20
<PAGE>
During 1995, the Capital Corporation issued $150 million of floating rate
notes due in 1998 and retired $150 million of 5% debentures, $150 million of
11-5/8% debentures and $100 million of 6% debentures all due in 1995. Also
during 1995, the Company issued $625 million and retired $226 million of
medium-term notes.
The Company maintained unsecured lines of credit with various banks in
North America and overseas. See note 4 to the consolidated financial statements.
The Capital Corporation paid cash dividends to John Deere Credit Company of
$55 million in 1995 and $210 million in 1994. In each case, John Deere Credit
Company paid a comparable dividend to Deere & Company. During the first quarter
of 1996, the Capital Corporation declared and paid a dividend of $20 million to
John Deere Credit Company which, in turn, declared and paid a dividend of $20
million to Deere & Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See accompanying table of contents of financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted pursuant to instruction J(2).
ITEM 11. EXECUTIVE COMPENSATION.
Omitted pursuant to instruction J(2).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to instruction J(2).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to instruction J(2).
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
(2) Financial Statement Schedules
See the table of contents to financial statements and schedules
immediately preceding the financial statements and schedules to
consolidated financial statements.
(3) Exhibits
See the index to exhibits immediately preceding the exhibits filed
with this report.
(b) Reports on Form 8-K
Current Report on Form 8-K dated August 17, 1995 (Items 5 and 7).
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JOHN DEERE CAPITAL CORPORATION
By: /s/ Hans W. Becherer
---------------------
Hans W. Becherer, Chairman
Date: 15 January 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Hans W. Becherer Director, Chairman and Principal ) 15 January 1996
- --------------------- Executive Officer )
Hans W. Becherer )
)
/s/ J. W. England Director )
- --------------------- )
J. W. England )
)
)
/s/ B. L. Hardiek Director )
- --------------------- )
B. L. Hardiek )
)
/s/ J. R. Heseman Director )
- --------------------- )
J. R. Heseman )
)
/s/ D. E. Hoffmann Director )
- --------------------- )
D. E. Hoffmann )
)
/s/ F. F. Korndorf Director )
- --------------------- )
F. F. Korndorf )
)
/s/ J. K. Lawson Director )
- --------------------- )
J. K. Lawson )
)
/s/ Pierre E. Leroy Director, Vice President and )
- --------------------- Principal Financial Officer )
Pierre E. Leroy )
)
/s/ M. P. Orr Director and President )
- --------------------- )
M. P. Orr )
)
23
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/s/ J. S. Robertson Vice President and ) 15 January 1996
- --------------------- Principal Accounting Officer )
J. S. Robertson )
)
/s/ E. L. Schotanus Director )
- --------------------- )
E. L. Schotanus )
)
/s/ D. H. Stowe, Jr. Director )
- --------------------- )
D. H. Stowe, Jr. )
)
/s/ J. D Volkert Director )
- --------------------- )
J. D. Volkert )
)
/s/ S. E. Warren Director )
- --------------------- )
S. E. Warren )
)
24
<PAGE>
[Deloitte & Touche LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
John Deere Capital Corporation:
We have audited the accompanying consolidated balance sheets of John Deere
Capital Corporation and subsidiaries as of October 31, 1995 and 1994 and the
related statements of consolidated income and retained earnings and of
consolidated cash flows for each of the three years in the period ended October
31, 1995. Our audits also included the financial statement schedule listed in
the Table of Contents on page 26. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of John Deere Capital Corporation and
subsidiaries at October 31, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended October 31,
1995 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 1 to the Consolidated Financial Statements, effective
November 1, 1992 the Company changed its method of accounting for postretirement
benefits other than pensions.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 6, 1995
25
<PAGE>
TABLE OF CONTENTS
PAGE
FINANCIAL STATEMENTS:
John Deere Capital Corporation and Subsidiaries (consolidated):
Statement of Consolidated Income and Retained Earnings
for the Years Ended October 31, 1995, 1994 and 1993. . . . . . . . . 27
Consolidated Balance Sheet, October 31, 1995 and 1994 . . . . . . . . . 28
Statement of Consolidated Cash Flows for the Years Ended
October 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . 30
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts for the
Years Ended October 31, 1995, 1994 and 1993. . . . . . . . . . . . . 46
SCHEDULES OMITTED
The following schedules are omitted because of the absence of conditions
under which they are required:
I, III, IV, and V.
26
<PAGE>
STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
JOHN DEERE CAPITAL CORPORATION AND SUBSIDIARIES FOR THE YEAR ENDED OCTOBER 31
- ----------------------------------------------- --------------------------------------
(In millions of dollars) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Finance income earned on retail notes $ 333.5 $ 292.9 $ 314.2
Revolving charge account income 84.3 66.6 53.8
Lease revenues 48.0 43.6 39.6
Finance income earned on wholesale notes 23.1 11.0 10.3
Net gain on retail notes sold 11.4 10.3 15.6
Interest income from short-term investments 11.3 6.2 6.2
Securitization and servicing fee income 35.5 28.6 22.3
Interest income from Deere & Company 0.9 0.5 0.9
Other income 2.9 3.4 3.1
Total revenues 550.9 463.1 466.0
EXPENSES
Interest Expense:
On obligations to others 234.6 163.3 165.8
On notes payable to Deere & Company 3.8 3.3 2.0
Total interest expense 238.4 166.6 167.8
Operating Expenses:
Administrative and operating expenses 77.6 79.7 74.5
Provision for credit losses 32.3 27.8 28.1
Fees paid to Deere & Company 5.3 6.4 7.1
Depreciation of equipment on operating leases 21.9 20.8 19.2
Total operating expenses 137.1 134.7 128.9
Total expenses 375.5 301.3 296.7
Income before income taxes and changes in accounting 175.4 161.8 169.3
Provision for income taxes 61.3 56.9 58.3
Income before changes in accounting 114.1 104.9 111.0
Changes in accounting (3.8)
Net income $ 114.1 $ 104.9 $ 107.2
Cash dividends paid (55.0) (210.0) (82.0)
Retained earnings at beginning of the year 521.2 626.3 601.1
Retained earnings at end of the year $ 580.3 $ 521.2 $ 626.3
Ratio of earnings to fixed charges 1.73 1.96 1.99*
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 30 TO 45
ARE AN INTEGRAL PART OF THIS STATEMENT.
* EXCLUDES EFFECT OF ACCOUNTING CHANGES.
27
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JOHN DEERE CAPITAL CORPORATION AND SUBSIDIARIES OCTOBER 31
- ----------------------------------------------- ------------------------
(In millions of dollars) 1995 1994
------------ ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 164.3 $ 42.9
Receivables and leases:
Retail notes 3,824.9 3,289.2
Revolving charge accounts 510.2 437.3
Financing leases 149.3 117.7
Wholesale notes 298.1 142.2
Total receivables 4,782.5 3,986.4
Equipment on operating leases 139.5 125.2
Total receivables and leases 4,922.0 4,111.6
Allowance for credit losses (84.2) (80.1)
Total receivables and leases - net 4,837.8 4,031.5
Other receivables 183.4 155.1
Other assets 65.3 60.1
TOTAL $5,250.8 $4,289.6
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term borrowings:
Commercial paper $1,986.7 $1,580.7
Deere & Company 460.1 102.7
Current maturities of long-term borrowings 343.9 632.8
Total short-term borrowings 2,790.7 2,316.2
Accounts payable and accrued liabilities:
Accrued interest on notes and debentures 28.4 37.4
Other payables 126.0 142.8
Total accounts payable and accrued liabilities 154.4 180.2
Deposits withheld from dealers and merchants 126.6 111.4
Long-term borrowings:
Notes and debentures 1,172.9 734.5
Subordinated debt 300.0 300.0
Total long-term borrowings 1,472.9 1,034.5
Retirement benefit accruals and other liabilities 13.1 13.3
Stockholder's equity:
Common stock, without par value (issued and outstanding - 2,500
shares owned by John Deere Credit Company) 112.8 112.8
Retained earnings 580.3 521.2
Total stockholder's equity 693.1 634.0
TOTAL $5,250.8 $4,289.6
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 30 TO 45
ARE AN INTEGRAL PART OF THIS STATEMENT.
28
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
JOHN DEERE CAPITAL CORPORATION AND SUBSIDIARIES FOR THE YEAR ENDED OCTOBER 31
- ----------------------------------------------- ----------------------------------------
(In millions of dollars) 1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 114.1 $ 104.9 $ 107.2
Adjustments to reconcile net income to net cash provided
by operating activities:
Changes in accounting, cumulative net adjustment 3.8
Provision for credit losses 32.3 27.8 28.1
Provision for depreciation 23.8 22.6 21.0
Deferred income taxes (2.0) (3.0) 3.8
Other (7.0) 7.8 (6.6)
Net cash provided by operating activities 161.2 160.1 157.3
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of receivables and leases acquired (4,667.4) (3,941.9) (3,340.6)
Collections of receivables 3,038.5 2,656.6 2,642.5
Proceeds from sales of receivables 726.3 580.2 1,161.7
Other 5.2 59.5 13.9
Net cash provided by (used for) investing activities (897.4) (645.6) 477.5
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in notes payable to others 405.9 1,126.8 (1,032.7)
Change in receivable/payable with Deere & Company 357.5 (336.9) 373.9
Proceeds from issuance of long-term borrowings 775.0 188.5 687.0
Principal payments on long-term borrowings (625.8) (405.2) (506.9)
Dividends paid (55.0) (210.0) (82.0)
Net cash provided by (used for) financing activities 857.6 363.2 (560.7)
Net increase (decrease) in cash and cash equivalents 121.4 (122.3) 74.1
Cash and cash equivalents at beginning of year 42.9 165.2 91.1
Cash and cash equivalents at end of year $ 164.3 $ 42.9 $ 165.2
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 30 TO 45
ARE AN INTEGRAL PART OF THIS STATEMENT.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
CORPORATE ORGANIZATION
John Deere Capital Corporation (Capital Corporation) is a wholly-owned
subsidiary of John Deere Credit Company, a finance holding company which is
wholly-owned by Deere & Company. The Capital Corporation and its subsidiaries,
Deere Credit Services, Inc. (DCS), Farm Plan Corporation (FPC), Deere Credit,
Inc. (DCI), and John Deere Receivables, Inc. (JDRI), are collectively called the
Company. Deere & Company with its other wholly-owned subsidiaries are
collectively called John Deere.
Retail notes, revolving charge accounts, financing leases, and wholesale
notes are collectively called "Receivables." Receivables and operating leases
are collectively called "Receivables and Leases."
The risk of credit losses applicable to John Deere retail notes and leases,
net of recovery from withholdings from John Deere dealers, is borne by the
Company. During 1995, John Deere was compensated by the Company for originating
retail notes on John Deere products. John Deere is reimbursed by the Company for
staff support and other administrative services at estimated cost, and for
credit lines provided by Deere & Company based on utilization of the lines. John
Deere is compensated for originating leases on John Deere products and is
reimbursed for staff support in a manner similar to the procedures for retail
notes.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Capital Corporation and its subsidiaries, all of which are wholly-owned.
ACCOUNTING CHANGES
In 1995, the Company adopted Financial Accounting Standards Board (FASB)
Statement No. 119, Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments. Additional information is presented in note 13
to the consolidated financial statements.
In the fourth quarter of 1993, the Company adopted FASB Statement No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, effective
November 1, 1992. Prior quarters of 1993 were restated as required by this
Statement. The Company elected to recognize the pretax transition obligation of
$5.4 million ($3.6 million net of deferred income taxes) as a one-time charge to
earnings in 1993. For years prior to 1993, postretirement benefits were
generally included in costs as covered expenses were actually incurred. The
adoption of FASB Statement No. 106 resulted in an incremental pretax expense of
$.2 million compared with the expense determined under the previous accounting
principle.
30
<PAGE>
In the fourth quarter of 1993, the Company adopted FASB Statement No. 112,
Employers' Accounting for Postemployment Benefits, effective November 1, 1992.
The Company previously accrued certain disability related benefits when the
disability occurred. Results for the first quarter of 1993 were restated for the
cumulative pretax charge resulting from this change in accounting as of November
1, 1992 which totaled $.3 million ($.2 million net of deferred income taxes).
The adoption of FASB Statement No. 112 had an immaterial effect on 1993
expenses.
RETAIL NOTES RECEIVABLE
The principal business of the Company is providing and administering
financing for retail purchases of new and used John Deere agricultural,
industrial and lawn and grounds care equipment. The Company purchases retail
installment sales and loan contracts (retail notes) from John Deere. These
retail notes are acquired by John Deere through John Deere retail dealers in the
United States. The Company also purchases and finances retail notes unrelated to
John Deere, representing primarily recreational vehicle and recreational marine
product notes acquired from independent dealers of those products and from
marine product mortgage service companies (recreational product retail notes).
Finance income included in the face amount of retail notes is amortized
into income over the lives of the notes on the effective-yield basis. Unearned
finance income on variable-rate notes is adjusted monthly based on fluctuations
in the base rate of a specified bank.
Costs incurred in the acquisition of retail notes are deferred and
amortized into income over the expected lives of the notes on the effective-
yield basis.
A portion of the finance income earned by the Company arises from financing
the retail sales of John Deere equipment sold in advance of the season of use or
in other sales promotions by John Deere on which finance charges are waived by
John Deere for a period from the date of sale to a specified subsequent date.
Some low-rate financing programs are also offered by John Deere. The Company
generally receives compensation from John Deere equal to a competitive interest
rate for periods during which finance charges have been waived or reduced on
retail notes and leases. The portions of the Company's finance income earned
that were received from John Deere on retail notes containing waiver of finance
charges or reduced rates were 19 percent in 1995, 14 percent in 1994 and 19
percent in 1993.
A deposit equal to one percent of the face amount of John Deere
agricultural and lawn and grounds care equipment retail notes originating from
each dealer is withheld from that dealer and recorded by the Company. Any
subsequent retail note losses are charged against the withheld deposits. To the
extent that a loss on a retail note cannot be absorbed by deposits withheld from
the dealer from which the retail note was acquired, it is charged against the
Company's allowance for credit losses. At the end of each calendar year, the
balance of each dealer's withholding account in excess of a specified percent
(currently 3 percent) of the total balance outstanding on retail notes
originating with that dealer is remitted to the dealer, and any negative balance
in the
31
<PAGE>
dealer withholding account is written off and absorbed by the Company's
allowance for credit losses.
All John Deere industrial equipment retail notes are acquired on a non-
recourse basis and there is no withholding of dealer deposits on those notes.
The Company does not withhold deposits on recreational product retail notes.
The Company requires that theft and physical damage insurance be carried on
all goods leased or securing retail notes. In most cases, the customer may, at
his own expense, have the Company or the seller of the goods purchase this
insurance or obtain it from other sources. Theft and physical damage insurance
is also required on wholesale notes and can be purchased through the Company or
from other sources. Insurance is not required on revolving charge accounts.
Generally, when an account becomes 120 days delinquent, accrual of finance
income is suspended, the collateral is repossessed or the account is designated
for litigation, and the estimated uncollectible amount, after charging the
dealer's withholding account, if any, is written off to the allowance for credit
losses.
REVOLVING CHARGE ACCOUNTS RECEIVABLE
Revolving charge account income is generated primarily by two revolving
credit products: Farm Plan and the John Deere Credit Revolving Plan.
Farm Plan is primarily used by agri-businesses to finance purchases, such
as parts and service labor, which would otherwise be carried by the merchants as
accounts receivable. Farm Plan income includes a discount paid by merchants for
the purchase of customer accounts and finance charges paid by customers on their
outstanding revolving charge account balances. Merchant recourse and a merchant
reserve are established on some receivables purchased.
The John Deere Credit Revolving Plan is used primarily by retail customers
of John Deere dealers to finance lawn and grounds care equipment. Income
includes a discount paid by dealers on most transactions and finance charges
paid by customers on their outstanding account balances.
Accrual of revolving charge account income is suspended generally when an
account becomes 120 days delinquent. Accounts are deemed to be uncollectible and
written off to the allowance for credit losses when delinquency reaches 180 days
for a Farm Plan account and 150 days for John Deere Credit Revolving Plan
accounts.
DIRECT FINANCING LEASES AND EQUIPMENT ON OPERATING LEASES
The Company leases John Deere agricultural equipment, industrial equipment
and lawn and grounds care equipment, as well as other equipment, to retail
customers.
At the time of accepting a lease that qualifies as a direct financing lease
under FASB Statement No. 13, the Company records the gross amount of lease
payments receivable, estimated residual value of the leased equipment for non-
purchase option
32
<PAGE>
leases and unearned lease income. The unearned lease income is equal to the
excess of the gross lease receivable plus the estimated residual value over the
cost of the equipment. The unearned lease income is recognized as revenue over
the lease term on the effective-yield method.
Leases that do not meet the criteria for direct financing leases as
outlined by FASB Statement No. 13 are accounted for as operating leases. Rental
payments applicable to equipment on operating leases are recorded as income on a
straight-line method over the lease terms. Operating lease assets are recorded
at cost and depreciated on a straight-line method over the terms of the leases.
Lease acquisition costs are accounted for in a manner similar to the
procedures for retail notes.
Deposits withheld from John Deere dealers and related losses on leases are
handled in a manner similar to the procedures for retail notes. In addition, a
lease payment discount program, allowing reduced payments over the term of the
lease, is administered in a manner similar to finance waiver on retail notes.
Equipment returned to the Company upon termination of leases and held for
subsequent sale or lease is recorded at the estimated wholesale market value of
the equipment.
Generally, when an account becomes 120 days delinquent, accrual of lease
revenue is suspended, the equipment is repossessed or the account is designated
for litigation and the estimated uncollectible amount, after charging the
dealer's withholding account, if any, is written off to the allowance for credit
losses.
WHOLESALE RECEIVABLES
The Company finances wholesale inventories of recreational vehicles,
manufactured housing units, yachts, John Deere engines, and John Deere
industrial equipment owned by dealers of those products. Wholesale finance
income is generally recognized monthly based on the daily balance of wholesale
receivables outstanding and the applicable effective interest rate. Interest
rates vary with a prevailing bank base rate, the type of equipment financed and
the balance outstanding. Wholesale receivables are secured by equipment
financed. Although amounts are not withheld from dealers to cover uncollectible
receivables, there are repurchase agreements with certain manufacturers for new
inventories held by dealers. Generally, when an account becomes 60 days
delinquent, accrual of finance income is suspended, the collateral is
repossessed and the estimated uncollectible amount is written off to the
allowance for credit losses.
OTHER RECEIVABLES
The Company has sold retail notes to limited-purpose business trusts, which
utilized the notes as collateral for the issuance of asset backed securities to
the public. At the time of the sales, "Other receivables" from the trusts were
recorded at net present value. The receivables relate to deposits made pursuant
to recourse provisions
33
<PAGE>
and other payments to be received under the sales agreements. The receivables
will be amortized to their value at maturity using the interest method. The
Company is also compensated by the trusts for certain expenses incurred in the
administration of these receivables. Securitization and servicing fee income
includes the amortization of the above receivables, adjustments related to those
sales and reimbursed administrative expenses.
RECLASSIFICATIONS
Certain amounts for prior years have been reclassified to conform with the
1995 financial statement presentations.
NOTE 2. RECEIVABLES AND LEASES.
RETAIL NOTES RECEIVABLE
Retail notes receivable by product category at October 31 in millions of
dollars follow:
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Agricultural equipment - new $ 1,506.6 $ 1,325.4
Agricultural equipment - used 1,291.6 999.7
Industrial equipment - new 464.3 363.8
Industrial equipment - used 123.4 110.3
Lawn and grounds care equipment - new 172.0 163.3
Lawn and grounds care equipment - used 18.8 19.9
Recreational products 1,396.9 1,275.7
Total 4,973.6 4,258.1
Unearned finance income:
Equipment (617.1) (493.3)
Recreational products (531.6) (475.6)
Total (1,148.7) (968.9)
Retail notes receivable $ 3,824.9 $ 3,289.2
</TABLE>
34
<PAGE>
Retail note installments at October 31 are scheduled as follows in millions
of dollars:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Due in:
0-12 months $ 1,165.7 $ 999.9
13-24 months 1,042.6 903.7
25-36 months 877.7 745.8
37-48 months 673.1 561.1
49-60 months 458.1 388.0
61-72 months 209.2 191.2
Over 72 months 547.2 468.4
Total $ 4,973.6 $ 4,258.1
</TABLE>
Company guidelines relating to down payment requirements and maximum
contract terms on retail notes are generally as follows:
<TABLE>
<CAPTION>
DOWN CONTRACT
PAYMENT TERMS
------- ------------
<S> <C> <C>
Agricultural equipment, new and used:
Seasonal payments 30% 7 crop years
Monthly payments 20% 84 months
Industrial equipment:
New 20% 48-60 months
Used 20% 36 months
Lawn and grounds care equipment, new and used:
Personal use 10% 72 months
Commercial use 20% 72 months
Recreational products:
New 15% 180 months
Used 15% 144 months
</TABLE>
During 1995, the average effective yield on retail notes held by the
Company was approximately 10.0 percent compared with 9.4 percent in 1994.
Retail notes acquired by the Company during the year ended October 31, 1995
had an estimated average original term (based on dollar amounts) of 71 months.
During 1994 and 1993, the estimated average original term was 70 and 67 months,
respectively. Historically, because of prepayments, the average actual life of
retail notes has been considerably shorter than the average original term.
During 1995, the Company received proceeds of $726 million from the sale of
retail notes to limited-purpose business trusts, which utilized the notes as
collateral for the issuance of asset backed securities to the public. During
1994 and 1993, the
35
<PAGE>
Company received proceeds of $560 million and $1.143 billion from the sale of
retail notes.
At October 31, 1995, 1994 and 1993, the balance of all retail notes
previously sold by the Company was $1.162 billion, $1.175 billion and $1.394
billion, respectively. Additional sales of retail notes are expected to be made
in the future.
The Company recognizes any gain or loss at the time of the sale of retail
notes. The Company acts as agent for the buyers in collection and administration
of all the notes it has sold. The Company's maximum exposure under all retail
note recourse provisions at October 31, 1995 and 1994 was $180 million and $140
million, respectively. All retail notes sold are collateralized by security
agreements on the related machinery sold to the customers.
REVOLVING CHARGE ACCOUNTS RECEIVABLE
Revolving charge accounts receivable at October 31, 1995 totaled $510
million compared with $437 million at October 31, 1994. Account holders may pay
the account balance in full at any time, or make payments over a number of
months according to a payment schedule. A minimum amount is due each month from
customers selecting the revolving payment option.
FINANCING LEASES RECEIVABLE
Financing leases receivable by product category at October 31 are as
follows in millions of dollars:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Agricultural equipment $ 89.7 $ 81.5
Industrial equipment 56.5 46.0
Lawn and grounds care equipment 5.2 4.6
Other equipment 24.0 5.0
Total 175.4 137.1
Estimated residual values 0.9 1.7
Unearned finance income (27.0) (21.1)
Financing leases receivable $ 149.3 $ 117.7
</TABLE>
Residual values represent the amounts estimated to be recoverable at
maturity from disposition of the leased equipment under non-purchase option
financing leases.
36
<PAGE>
Initial lease terms for financing leases range from 12 months to 72 months.
Payments on financing leases receivable at October 31 are scheduled as follows
in millions of dollars:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Due in:
0-12 months $ 57.9 $ 46.0
13-24 months 49.2 35.8
25-36 months 35.7 27.8
37-48 months 23.1 17.3
Over 48 months 9.5 10.2
Total $ 175.4 $ 137.1
</TABLE>
The Company administers municipal leases owned by Deere & Company which
totaled $21 million at October 31, 1995 and $39 million at October 31, 1994. The
Company sold $20 million and $ 43 million, respectively, of municipal leases to
Deere & Company in 1994 and 1993. During 1995 the Company did not sell municipal
leases to Deere & Company.
WHOLESALE NOTES RECEIVABLE
Wholesale notes receivables on recreational vehicle, manufactured housing,
yachts, John Deere engine inventories and John Deere industrial equipment
totaled $298 million at October 31, 1995 compared with $142 million at October
31, 1994. Generally, the maximum maturity for wholesale notes is 12 months.
EQUIPMENT ON OPERATING LEASES
The cost of equipment on operating leases by product category at October 31
follows in millions of dollars:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Agricultural equipment $ 129.4 $ 120.3
Industrial equipment 55.2 43.3
Lawn and grounds care equipment 2.0 0.5
Other equipment .8 --
Total 187.4 164.1
Accumulated depreciation (47.9) (38.9)
Equipment on operating leases $ 139.5 $ 125.2
</TABLE>
37
<PAGE>
Initial lease terms for equipment on operating leases range from 12 months
to 72 months. Rental payments for equipment on operating leases at October 31
are scheduled as follows in millions of dollars:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Due in:
0-12 months $ 24.5 $ 28.3
13-24 months 14.9 11.8
25-36 months 9.2 3.8
37-48 months 5.2 1.7
Over 48 months 1.6 .4
Total $ 55.4 $ 46.0
</TABLE>
CONCENTRATION OF CREDIT RISK
Receivables and Leases have significant concentrations of credit risk in
the agricultural, industrial, lawn and grounds care and recreational product
business sectors as shown in the previous tables. On a geographic basis, there
is not a disproportionate concentration of credit risk in any area of the United
States. The Company retains as collateral a security interest in the equipment
associated with Receivables and Leases other than revolving charge accounts.
NOTE 3. ALLOWANCE FOR CREDIT LOSSES.
Allowances for credit losses on Receivables and Leases are maintained in
amounts considered to be appropriate in relation to the Receivables and Leases
outstanding based on estimated collectibility and collection experience.
An analysis of the allowance for credit losses on total Receivables and
Leases follows in millions of dollars:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Balance, beginning of the year $ 80.1 $ 77.5 $ 83.0
Provision charged to operations 32.3 27.8 28.1
Amounts written off (23.7) (20.8) (26.1)
Transfers related to retail note sales (4.5) (4.4) (7.5)
Balance, end of the year $ 84.2 $ 80.1 $ 77.5
</TABLE>
The allowance for credit losses represented 1.7 percent, 1.9 percent and
2.3 percent of Receivables and Leases outstanding at October 31, 1995, 1994 and
1993, respectively. In addition, the Company had $127 million, $111 million and
$105 million at October 31, 1995, 1994 and 1993, respectively, of deposits
withheld from John Deere dealers and Farm Plan merchants available for certain
potential credit losses originating from those dealers and merchants. The
provision for credit losses in 1995 reflects the growth in the total Receivables
and Leases portfolios. It also reflects a
38
<PAGE>
favorable adjustment of $6.7 million related to current and expected losses on
industrial and revolving charge loans.
NOTE 4. SHORT-TERM BORROWINGS.
On October 31, 1995, short-term borrowings were $2.791 billion, $1.987
billion of which was commercial paper. Short-term borrowings were $2.316 billion
one year ago, $1.581 billion of which was commercial paper. The Capital
Corporation's short-term debt also includes amounts borrowed from Deere &
Company, which totaled $460 million at October 31, 1995. The Capital Corporation
pays a market rate of interest to Deere & Company based on the average
outstanding borrowings each month. The weighted average interest rates on all
short-term borrowings, excluding current maturities of long-term borrowings, at
October 31, 1995 and 1994 were 5.8 percent and 4.9 percent, respectively.
At October 31, 1995, the Capital Corporation, Deere & Company, John Deere
Limited (Canada) and John Deere Finance Limited (Canada), jointly, maintained
$4.008 billion of unsecured lines of credit with various banks in North America
and overseas, $1.370 billion of which was unused. For the purpose of computing
unused credit lines, the total short-term borrowings, excluding the current
portion of long-term borrowings, of the Capital Corporation, Deere & Company,
John Deere Limited (Canada) and John Deere Finance Limited (Canada) were
considered to constitute utilization. Included in the total credit lines is a
long-term credit agreement commitment for $3.500 billion. An annual facility fee
on the credit agreement is charged to the Capital Corporation based on
utilization.
At October 31, 1995, the Capital Corporation had no borrowings outstanding
under the credit agreements. These agreements require the Capital Corporation to
maintain its consolidated ratio of earnings to fixed charges at no less than
1.05 to 1 for each fiscal quarter. In addition, the Capital Corporation's ratio
of senior debt to total stockholder's equity plus subordinated debt may not be
more than 8 to 1 at the end of any fiscal quarter. For purposes of these
calculations, "earnings" consist of income before income taxes to which are
added fixed charges. "Fixed charges" consist of interest on indebtedness,
amortization of debt discount and expense, an estimated amount of rental expense
under capitalized leases which is deemed to be representative of the interest
factor and rental expense under operating leases. "Senior debt" consists of the
Company's total interest-bearing obligations, excluding subordinated debt, but
including borrowings from Deere & Company. The Company's ratio of senior debt to
total stockholder's equity plus subordinated debt was 4.0 to 1 at October 31,
1995 compared with 3.3 to 1 at October 31, 1994.
39
<PAGE>
NOTE 5. LONG-TERM BORROWINGS.
Long-term borrowings of the Capital Corporation at October 31 consisted of
the following in millions of dollars:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Senior Debt:
Medium-term notes due 1995-2000:
Average interest rate of 7.0% as of year end 1995 and 1994. $ 825.7 $ 337.7
4-5/8% Notes due 1996 200.0
7.20% Notes due 1997 100.0 100.0
Floating rate notes due 1998 (federal funds rate):
Swapped to an alternative variable interest rate of 6.0% as of
year end 1995. 150.0
5% Swiss Franc Bonds due 1999:
Swapped to U.S. dollars and a variable interest rate of 6.4% as
of year end 1995 and 5.8% as of year end 1994. 97.5 97.5
Total 1,173.2 735.2
Less unamortized debt discount 0.3 0.7
Net Senior Debt 1,172.9 734.5
Subordinated Debt:
9-5/8% Subordinated Notes due 1998:
Swapped to variable interest rate of 6.5% as of year end 1995
and 5.9% as of year end 1994. 150.0 150.0
8-5/8% Subordinated Debentures due 2019:
Swapped to variable interest rate of 5.7% as of year end 1995
and 5.3% as of year end 1994. 150.0 150.0
Total Subordinated Debt 300.0 300.0
Total $ 1,472.9 $ 1,034.5
</TABLE>
The approximate amounts of long-term borrowings maturing and sinking fund
payments required in each of the next five years, in millions of dollars, are as
follows: 1996 - $344, 1997 - $489, 1998 - $393, 1999 -$248, 2000 - $290.
NOTE 6. FIXED CHARGE COVERAGE.
Deere & Company has expressed an intention of conducting its business with
the Company on such terms that the Company's consolidated ratio of earnings to
fixed charges will not be less than 1.05 to 1 for each fiscal quarter. Financial
support was not provided in 1995, 1994 or 1993, as the ratios were 1.73 to 1,
1.96 to 1 and 1.99 to 1, respectively. This arrangement is not intended to make
Deere & Company responsible for the payment of Company obligations.
40
<PAGE>
NOTE 7. COMMON STOCK.
All of the Company's common stock is owned by John Deere Credit Company, a
wholly-owned finance holding subsidiary of Deere & Company. No shares of common
stock of the Company were reserved for officers or employees or for options,
warrants, conversions or other rights at October 31, 1995 or 1994. At October
31, 1995, the Company had authorized, but not issued, 10,000 shares of $1 par
value preferred stock.
NOTE 8. DIVIDENDS.
The Capital Corporation paid cash dividends to John Deere Credit Company of
$55 million in 1995 and $210 million in 1994. In each case, John Deere Credit
Company paid a comparable dividend to Deere & Company. During the first quarter
of 1996, the Capital Corporation declared and paid a dividend of $20 million to
John Deere Credit Company which, in turn, declared and paid a dividend of $20
million to Deere & Company.
NOTE 9. PENSION AND OTHER RETIREMENT BENEFITS.
The Company participates in the Deere & Company salaried pension plan,
which is a defined benefit plan in which benefits are based primarily on years
of service and employees' compensation near retirement. This plan is funded
according to the 1974 Employee Retirement Income Security Act (ERISA) and income
tax regulations. Plan assets consist primarily of common stocks, common trust
funds, government securities and corporate debt securities. Pension expense is
actuarially determined based on the Company's employees included in the plan.
The Company's pension expense amounted to $1.4 million in 1995 and $1.5 million
in 1994 and 1993. Further disclosure for the plan is included in the Deere &
Company 1995 annual report pension note.
The Company generally provides defined benefit health care and life
insurance plans for retired employees. Health care and life insurance benefits
expense is actuarially determined based on the Company's employees included in
the plans and amounted to $.9 million in 1995, $.7 million in 1994 and $.6
million in 1993.
NOTE 10. INCOME TAXES.
TAXES ON INCOME AND INCOME TAX CREDITS
The taxable income of the Company is included in the consolidated United
States income tax return of Deere & Company. Provisions for income taxes are
made generally as if the Capital Corporation and each of its subsidiaries filed
separate income tax returns.
41
<PAGE>
DEFERRED INCOME TAXES
Deferred income taxes arise because there are certain items that are
treated differently for financial accounting than for income tax reporting
purposes. An analysis of deferred income tax assets and liabilities at October
31 in millions of dollars follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Allowance for credit losses $ 34.3 $ 32.2
Deferred lease income $ 7.6 $ 7.0
Deferred retail note finance income 8.1 4.6
Accrual for retirement and postemployment benefits 2.3 2.2
Partnership income 7.8 3.8
Miscellaneous accruals and other .4 .3
Total deferred income tax assets and liabilities $ 44.4 $16.1 $ 38.2 $11.9
</TABLE>
The provision for income taxes consisted of the following in millions of
dollars:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Current $ 63.3 $ 59.9 $ 54.5
Deferred (2.0) (3.0) 3.8
Total provision for income taxes $ 61.3 $ 56.9 $ 58.3
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 was signed into law during
1993. In accordance with FASB Statement No. 109, Accounting for income Taxes,
deferred tax assets and liabilities as of the enactment date were revalued
during 1993 using the new rate of 35 percent. This resulted in a credit of $.7
million to the provision for income taxes.
EFFECTIVE INCOME TAX PROVISION
A comparison of the statutory and effective income tax provisions of the
Company and reasons for related differences follow in millions of dollars:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
United States federal income tax provision at a statutory rate of 35
percent in 1995 and 1994, and 34.83 percent in 1993 $ 61.4 $ 56.6 $ 59.0
Municipal lease income not taxable (0.3) (0.1) (0.3)
Effect of statutory tax rate change on deferred taxes (0.7)
Other adjustments - net 0.2 0.4 0.3
Total provision for income taxes $ 61.3 $ 56.9 $ 58.3
</TABLE>
42
<PAGE>
NOTE 11. CASH FLOW INFORMATION.
For purposes of the statement of consolidated cash flows, the Company
considers investments with original maturities of three months or less to be
cash equivalents. Substantially all of the Company's short-term borrowings
mature within three months or less.
Cash payments by the Company for interest incurred on borrowings in 1995,
1994 and 1993 were $225.2 million, $173.7 million and $134.8 million,
respectively. Cash payments for income taxes during these same periods were
$63.5 million, $59.7 million and $54.9 million, respectively.
NOTE 12. LEGAL PROCEEDINGS.
The Company is subject to various unresolved legal actions which arise in
the normal course of its business, the most prevalent of which relate to state
and federal regulations concerning retail credit. Although it is not possible to
predict with certainty the outcome of these unresolved legal actions or the
range of possible loss, the Company believes these unresolved legal actions will
not have a material effect on its financial position or results of operations.
NOTE 13. FINANCIAL INSTRUMENTS.
The fair values of financial instruments which do not approximate the
carrying values in the financial statements at October 31 in millions of dollars
follow:
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Receivables financed and other receivables
related to asset backed securities $ 4,962 $ 4,963 $ 4,127 $ 4,129
Long-term borrowings and related swaps:
Long-term borrowings (1,504) (1,545) (1,053) (1,048)
Interest rate and foreign currency swaps 31 56 18 20
Total $ (1,473) $ (1,489) $ (1,035) $ (1,028)
</TABLE>
FAIR VALUE ESTIMATES
Fair values of the long-term receivables financed with fixed rates were
based on the discounted values of their related cash flows at current market
rates. The fair values of the remaining receivables financed approximated the
carrying amounts. The fair values of receivables related to asset backed
securities were based on the discounted values of their related cash flows.
Fair values of long-term borrowings with fixed rates were based on the
discounted values of their related cash flows at current market interest rates.
Fair values of the Company's long-term borrowings that have been swapped to
current variable interest rates approximated their carrying amounts. However,
the fair values of
43
<PAGE>
the long-term borrowings and the related interest rate and foreign currency
swaps are shown separately in the previous table. Fair values of these swaps
were based on quotes from dealers.
Fair values and carrying values of the Company's other interest rate swaps
and caps associated with short-term borrowings were not material.
DERIVATIVES
The Company enters into derivative transactions only to hedge exposures
arising in the normal course of business, and not for the purpose of creating
speculative positions or trading. The following notional or contract amounts do
not represent amounts exchanged by the parties and, therefore, are not
representative of the Company's risk. The net amounts exchanged are calculated
on the basis of the notional amounts and other terms of the derivatives such as
interest rates and exchange rates, and represent only a small portion of the
notional amounts. The credit and market risk under these agreements is not
considered to be significant since the counterparties have high credit ratings
and the fair values and carrying values are not material.
INTEREST RATE SWAPS AND CAPS
The Company has entered into interest rate swap and interest rate cap
agreements related to borrowings in order to more closely match the type of
interest rates of the borrowings to those of the assets being funded. The
differential to be paid or received on all swap and cap agreements is accrued as
interest rates change and is recognized over the lives of the agreements in
interest expense. Premiums are amortized to interest expense over the lives of
the agreements.
At October 31, 1995 and 1994, the total notional principal amounts of
interest rate swap agreements hedging short-term borrowings were $100 million
and $563 million, having rates of 6.5 percent and 4.5 to 5.9 percent,
terminating in up to four months and 16 months, respectively. The total notional
principal amount of interest rate cap agreements hedging short-term borrowings
at October 31, 1994 was $33 million, having capped rates of 6.3 to 8.3 percent,
terminating in up to nine months. There were no interest rate cap agreements at
October 31, 1995.
The Company has entered into interest rate swap agreements with independent
parties that change the effective rate of interest on certain long-term
borrowings to a variable rate. The "Long-Term Borrowings " table on page 40
reflects the effective year-end variable interest rates relating to these swap
agreements. The notional principal amounts and maturity dates of these swap
agreements are the same as the principal amounts and maturities of the related
borrowings. In addition, the Company has interest rate swap agreements
corresponding to a portion of its fixed-rate long-term borrowings. At October
31, 1995 and 1994, the total notional principal amounts of these interest rate
swap agreements were $116 million and $302 million, having variable interest
rates of 6.1 to 6.5 percent and 5.3 to 5.7 percent, terminating in up to 16
months and 28 months, respectively.
44
<PAGE>
The Company has interest rate swap agreements associated with medium-term
notes. The "Long Term Borrowings" table on page 40 reflects the interest rates
relating to these swap agreements. At October 31, 1995 and 1994, the total
notional principal amounts of these swap agreements were $260 million and $40
million, terminating in up to 83 months and 45 months, respectively.
FOREIGN EXCHANGE SWAPS
At October 31, 1995 and 1994, the Company had a foreign exchange swap
agreement maturing in up to 39 and 51 months, respectively, for $97 million to
hedge the currency exposure of the 5% Swiss Franc Bonds due in 1999. The foreign
exchange swap gains and losses are accrued as foreign exchange rates change.
NOTE 14. QUARTERLY DATA (UNAUDITED).
Supplemental consolidated quarterly information for the Company follows in
millions of dollars:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
1995:
Revenues $ 126.2 $ 144.3 $ 132.6 $ 147.8 $550.9
Interest expense 55.1 60.6 57.8 64.9 238.4
Operating expenses 28.9 32.4 34.3 41.5 137.1
Income taxes 14.8 18.0 14.2 14.3 61.3
Net income 27.4 33.3 26.3 27.1 114.1
1994:
Revenues $ 104.7 $ 107.2 $ 115.3 $ 135.9 $463.1
Interest expense 35.9 36.3 43.7 50.7 166.6
Operating expenses 33.5 31.0 32.0 38.2 134.7
Income taxes 12.3 14.0 13.8 16.8 56.9
Net income 23.0 25.9 25.8 30.2 104.9
</TABLE>
45
<PAGE>
JOHN DEERE CAPITAL CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Balance at Additions Deductions
--------------------------------- ------------------------
Beginning Charged to Costs Charged to Other Balance at
Description of Year and Expenses Accounts-Explain Description Amount End of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended October 31, 1995:
Reserve deducted from the asset
to which it applies-
Credit losses Transfers related
to retail note sales $4,580
Uncollectible receivables $23,686 $84,159
--------- ---------
Total $80,122 $32,303 Total Deductions $28,266 $84,159
--------- --------- --------- ---------
--------- --------- ---------
Year Ended October 31, 1994:
Reserve deducted from the asset
to which it applies-
Credit losses Transfers related
to retail note sales $4,390
Uncollectible receivables $20,805 $80,122
--------- ---------
Total $77,486 $27,831 Total Deductions $25,195 $80,122
--------- --------- --------- ---------
--------- --------- --------- ---------
Year Ended October 31, 1993:
Reserve deducted from the asset
to which it applies-
Credit losses Transfers related
to retail note sales $7,511
Uncollectible receivables $26,094 $77,486
---------- ----------
Total $83,002 $28,089 Total Deductions $33,605 $77,486
--------- --------- ---------- ----------
--------- --------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
INDEX TO EXHIBITS
Page
2. Not applicable.
3.1 Certificate of Incorporation, as amended (Exhibit 3.1 to Form
10-K of the registrant for the year ended October 31, 1994*).
3.2 Bylaws, as amended (Exhibit 3.2 to Form 10-K of the registrant for
the year ended October 31, 1994*).
4.1 Credit agreements among registrant, Deere & Company, various
financial institutions, and Chemical Bank, The Chase Manhattan Bank
(National Association), Bank of America National Trust and Savings
Association, Deutsche Bank AG, and The Toronto-Dominion Bank as
Managing Agents, dated as of April 5, 1995 (Exhibit 4.1 to Form 10-Q
of Deere & Company for the quarter ended April 30, 1995 (Securities
and Exchange Commission file number 1-4121*).
4.2 Senior Indenture dated as of June 15, 1995 between the registrant and
The Chase Manhattan Bank (National Association), as Trustee (Exhibit
4.1 to Form 10-Q of the registrant for the quarter ended July 31,
1995*).
4.3 Subordinated Indenture dated as of June 15, 1995 between the
registrant and The First National Bank of Chicago, as Trustee
(Exhibit 4.2 to Form 10-Q of the registrant for the quarter ended
July 31, 1995*).
4.4 Form of certificate for common stock (Exhibit 4.3 to Form 10-Q of
the registrant for the quarter ended April 30, 1993*).
Certain instruments relating to long-term debt constituting less than
10% of the registrant's total assets may not be filed as exhibits
herewith pursuant to Item 604(b)(4)(iii)(A) of Regulation S-K. The
registrant will file copies of such instruments upon request of the
Commission.
9. Not applicable.
10.1 Agreement dated May 11, 1994 between the registrant and Deere &
Company concerning agricultural retail notes (Exhibit 10.1 to Form
10-Q of registrant for the quarter ended April 30, 1993*).
10.2 Amendment dated November 4, 1994 between the registrant and Deere 49
& Company concerning agricultural retail notes.
47
<PAGE>
Page
10.3 Agreement dated May 11, 1994 between registrant and Deere &
Company concerning lawn and grounds care retail notes (Exhibit
10.2 to Form 10-Q of the registrant for the quarter ended April 30,
1993*).
10.4 Amendment dated November 4, 1994 between the registrant and Deere 50
& Company concerning lawn and grounds care retail notes.
10.5 Agreement dated January 26, 1983 between registrant and Deere
& Company relating to agreements with United States sales branches
on retail notes (Exhibit 10.4 to Form 10-Q of the registrant for
the quarter ended April 30, 1993*).
10.6 Insurance policy no. CL-001 of Sierra General Life Insurance
Company providing insurance on lives of purchasers of certain
equipment financed with receivables (Exhibit 10.5 to Form 10-Q
of the registrant for the quarter ended April 30, 1993*).
11. Not applicable.
12. Statement of computation of the ratio of earnings before fixed 51
charges to fixed charges for each of the five years in the period
ended October 31, 1995.
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Omitted pursuant to instruction J(2).
22. Not applicable.
23. Consent of Deloitte & Touche LLP. 52
24.Not applicable.
27. Financial Data Schedule. 53
28. Not applicable.
99. Parts I and II of the Deere & Company Form 10-K for the fiscal
year ended October 31, 1995 (Securities and Exchange Commission
file number 1-4121*).
- ---------------------------
* Incorporated by reference. Copies of these exhibits are available from
the Company upon request.
48
<PAGE>
EXHIBIT 10.2
AMENDMENT TO
AGREEMENT CONCERNING AGRICULTURAL RETAIL NOTES
Deere & Company ("Sales Company"), its successors and assigns; and John Deere
Capital Corporation ("Capital Corporation") its successors and assigns;
agree as follows:
SECTION 1.
Section 2.3 of the AGREEMENT CONCERNING AGRICULTURAL RETAIL NOTES dated 11 May
1993, is hereby deleted and replaced by the following.
2.3 PURCHASE PRICE AND ORIGINATION FEE. The purchase price of any Retail Note
accepted by the Capital Corporation shall be the face amount of the Retail Note
less both the finance charge and any separately stated insurance premiums. An
additional payment, which is intended to compensate the Sales Company for
origination of receivables, shall be paid to the Sales Company on a monthly
basis. The amount of this payment shall be based on a mutually agreeable
percentage of the aggregate purchase prices of the Retail Notes accepted during
the preceding month (initially .328%), but that amount shall be reduced by any
amount paid by the Capital Corporation to the Sales Company for staff support
furnished and joint lines of credit available during the preceding month.
SECTION 2.
The parties mean for this Amendment to be construed broadly to give effect to
their intent.
SECTION 3.
This Amendment shall be effective as of 1 November 1994.
Dated as of , 1994.
-------------- ---
DEERE & COMPANY JOHN DEERE CAPITAL CORPORATION
By: By:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
49
<PAGE>
EXHIBIT 10.4
AMENDMENT TO
AGREEMENT CONCERNING LAWN & GROUNDS CARE RETAIL NOTES
Deere & Company ("Sales Company"), its successors and assigns; and John Deere
Capital Corporation ("Capital Corporation") its successors and assigns;
agree as follows:
SECTION 1.
Section 2.3 of the AGREEMENT CONCERNING LAWN & GROUNDS CARE RETAIL NOTES dated
11 May 1993, is hereby deleted and replaced by the following.
2.3 PURCHASE PRICE. The purchase price of any Retail Note accepted by the
Capital Corporation shall be the face amount of the Retail Note less both the
finance charge and any separately stated insurance premiums.
SECTION 2.
The parties mean for this Amendment to be construed broadly to give effect to
their intent.
SECTION 3.
This Amendment shall be effective as of 1 November 1994.
Dated as of , 1994.
-------------- ---
DEERE & COMPANY JOHN DEERE CAPITAL CORPORATION
By: By:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
50
<PAGE>
EXHIBIT 12
JOHN DEERE CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income
taxes and changes
in accounting $175,360 $161,809 $169,339 $142,920 $110,820 $ 99,366
Fixed charges 240,913 168,507 170,226 191,930 230,901 216,985
-------- -------- -------- -------- -------- --------
Total earnings $416,273 $330,316 $339,565 $334,850 $341,721 $316,351
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Fixed charges:
Interest expense $238,445 $166,591 $167,787 $189,288 $228,308 $214,707
Rent expense 2,468 1,916 2,439 2,642 2,593 2,278
-------- -------- -------- -------- -------- --------
Total fixed charges $240,913 $168,507 $170,226 $191,930 $230,901 $216,985
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Ratio of earnings to
fixed charges * 1.73 1.96 1.99 1.74 1.48 1.46
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
-------
"Earnings" consist of income before income taxes, the cumulative effect of
changes in accounting and fixed charges. "Fixed charges" consist of
interest on indebtedness, amortization of debt discount and expense, an
estimated amount of rental expense under capitalized leases which is deemed
to be representative of the interest factor and rental expense under
operating leases.
* The Company has not issued preferred stock. Therefore, the ratios of
earnings to combined fixed charges and preferred stock dividends are the
same as the ratios presented above.
51
<PAGE>
EXHIBIT 23
[Deloitte & Touche LLP Letter Head]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-66082, 33-60383, 33-46514, and 33-65088 of John Deere Capital Corporation on
Form S-3 of our report dated December 6, 1995, appearing in the Annual Report on
Form 10-K of John Deere Capital Corporation for the year ended October 31, 1995
and to the reference to us under the heading "Experts" in the Prospectuses,
which are a part of such Registration Statements.
DELOITTE & TOUCHE LLP
Chicago, Illinois
January 15, 1996
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000027673
<NAME> JOHN DEERE CAPITAL CORP
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 164
<SECURITIES> 0
<RECEIVABLES> 4,966
<ALLOWANCES> 84
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 15
<DEPRECIATION> 10
<TOTAL-ASSETS> 5,251
<CURRENT-LIABILITIES> 0
<BONDS> 1,473
0
0
<COMMON> 113
<OTHER-SE> 580
<TOTAL-LIABILITY-AND-EQUITY> 5,251
<SALES> 0
<TOTAL-REVENUES> 551
<CGS> 0
<TOTAL-COSTS> 22
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 238
<INCOME-PRETAX> 175
<INCOME-TAX> 61
<INCOME-CONTINUING> 114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
